Accounting Predetermined Overhead Rate Homework Help

Disposition of Underapplied or Overapplied Overhead Bieler & Cie of Altdorf Switzerland, makes furniture using the latest automated technology. The cornpamiy uses a job-order costing system and applies manufacturing overhead cost to products on the basis of machine-hours. The currency in Switzerland is the Swiss franc, which is denoted by Sfr. The following estimates were used in preparing the predetermined overhead rate at the beginning of the year

Machine Hours

75000

Manufacturing Overhead Costs

Sfr900,000

During the year, a glut of furniture on the market resulted in cutting back production and a buildup of furniture in the company’s warehouse. The company’s cost records revealed the following actual cost and operating data for the year:

Machine Hours

60,000

Manufacturing Overhead Costs

Sfr850,000

Inventories at Year End

Raw Materials

Sfr30,000

Work In progress (Includes Overhead applied of 36,000)

Sfr100,000

Finished Goods(Includes Overhead applied of 180,000)

Sfr500,000

Costs of Goods Sold(Includes Overhead applied of 504 ,000)

Sfr1,400,000

Required:
1. Compute the company’s predetermined overhead rate.

2. Compute the underapplied or overapplied overhead.

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3. Assume that the company closes any underapplied or overapplied overhead directly to Cost of Goods Sold. Prepare the appropriate journal entry.

4. Assume that the company allocates any underapplied or overapplied overhead to Work in Process, Finished Goods, and Cost of Goods Sold on the basis of the amount of overhead applied that remains in each account at the end of the year. Prepare the journal entry to show the allocation for the year.

5. How much higher or lower will net operating income be if the underapplied or overapplied overhead is allocated rather than closed directly to Cost of GoodsSold?